Answer to Question #80814 in Macroeconomics for AYANDA

Question

In the business cycle, an economic contraction occurs....

1) At the peak
2) Between the peak and the trough
3) At the trough
4) Between the trough and the peak

Answer 1

In a business cycle, an economic contraction occurs between the peak and the trough.
Justification
The expansion, peak, recession, trough, and recovery are the five different phases of the business cycle. Contraction usually takes place when the economy is moving from peak to recession. As a result of this facet, contraction is considered as the phase during which an economy is in decline (Mankiw, 2016). In effect, it occurs once the business cycle attains its peak and just before it graduates into a trough.